A new mutual fund investor may have many questions in his mind regarding his mutual fund investments. One of the important questions is how to build your mutual fund portfolio.
The best mutual fund portfolio for any investor depends on many factors such as the age of the investor, risk appetite, goals, investment horizon, etc. If you are clear about all these points then you can easily build the best mutual fund portfolio for you.
A good portfolio is considered to be a well balanced portfolio which can give you maximum returns. Today I will tell you the age wise of the investor, how you can make the best mutual fund portfolio for yourself.
But before that, I will tell you some golden rules to build a good portfolio, which you must keep in mind while making your mutual fund portfolio.
What are the things to keep in mind while creating a portfolio?
- You should always invest in equity mutual funds for the long term. The investment period should be at least 5 years.
- Do not hold more than one fund of the same mutual fund category in your portfolio. Doing so can lead to the problem of fund overlapping. Fund overlap means the availability of similar stocks in different mutual fund schemes. You can also check fund overlapping by visiting this link – Fund Overlapping
- You should never look at just absolute returns while buying mutual funds. Instead you should look at Annualized Returns. Also, you can view the rolling returns of the fund in which you can check the returns of the fund over five 5-year intervals.
- You should keep a maximum of 3 to 5 funds in your mutual fund portfolio. Also, these funds should be of different categories. Having more than one scheme of the same category can lead to fund overlap in the portfolio.
- You should review your mutual fund portfolio once in a year. With this you can be sure about the performance of your schemes. In this, you should see how your scheme is performing, whether there has been any change in the fund manager etc.
How to Build a Mutual Fund Portfolio?
To build the best mutual fund portfolio, I will tell you different age wise portfolios in which you have to keep some things in mind.
- All these mutual funds will be in SIP mode.
- You will remain invested in these schemes for minimum 5 years.
20 to 30 years
If you are in your 20’s then this is considered the best age to start investing. If you invest for a long period at this age, then you can also take risk. Here you can create an aggressive portfolio for yourself.
If you start investing early, you can build a very good wealth in the long run as your investments get more time for compounding.
If you are currently able to save less money and can invest only ₹ 500 or ₹ 1,000 per month, then you can invest this money in just one flexi cap fund.
But you can invest a little more money for example ₹5,000 then you can follow this strategy –
|₹1,000||small cap fund|
|₹2,000||Flexi Cap / Multi Cap Fund|
|₹1,000||mid cap fund|
|₹1,000||ELSS Fund / Blue Chip Fund|
You can choose between multi cap or flexi cap funds as per your requirement. If you want to invest to save tax then you can invest in ELSS category otherwise you can also invest in bluechip funds or large cap funds.
Not that this is the best portfolio. This is just a blueprint of the best portfolio for you in which you can modify as per your requirement.
You can read our post for Best Mutual Funds.
30 to 40 years
If you are in your 30’s then you start earning a lot at this age. However, many responsibilities also increase on you. But it is also necessary for you to invest so that you do not get burdened with loans in your future.
At this age, you have to build a balanced portfolio in which risk and reward are well combined. Let’s say you can invest ₹10,000 per month –
|₹2,000||small cap fund|
|₹5,000||Flexi Cap / Multi Cap Fund|
|₹1,000||blue chip fund|
If you do not need tax saving option then you can invest ₹2,000 per month in mid cap funds. If you want to take less risk then you can invest in bluechip funds by reducing a little in flexicap or multicap.
40 to 50 years
This age stage is considered very important for investment. At this age, you should invest in equities as well as other safe investment options. But here we are talking about mutual funds.
Here we assume that you can invest ₹10,000 per month in mutual funds.
|₹2,000||blue chip fund|
|₹4,000||Flexi Cap / Multi Cap Fund|
|₹2,000||mid cap fund|
If you do not need the tax saving option then you can replace the ELSS fund with a good hybrid fund. Hybrid funds have a mix of equity and debt. It helps in making your portfolio a balanced portfolio.
50 to 60 years
If you fall in this category then you are nearing your retirement. So here you cannot take too much risk with your money. Therefore, you should invest in such funds which have low risk appetite.
If you are investing ₹10,000 per month at this age, then you can do your asset location as follows –
|₹5,000||blue chip fund|
|₹2,000||Flexi Cap / Multi Cap Fund|
If you want to invest to save tax, you can also buy ELSS funds instead of hybrid funds.
Bluechip funds also carry a fair amount of risk of equity investments. If you want to take a little less risk, you can replace part of the bluechip fund with debt mutual funds.
Investors in this category should avoid investing in risky options like small cap funds.
These ages are less to invest money and more to save capital. If you are investing for any particular reason even at this age, then you should choose almost risk free investment options.
If you have already started investing, then at this stage of age you must have built up a significant amount of wealth. But if you want to invest anything at this age, then you should invest your money in debt funds, hybrid funds or balance funds only.
If you want to invest ₹10,000 per month then you can do your asset allocation as follows –
The amount of risk in this type of funds is very less. Hence debt funds can be a good option instead of equity at this age.
The construction of mutual fund portfolio varies from person to person according to age. Also, the amount of risk you can take plays an important role in portfolio building.
Although there are no standard criteria to build a mutual fund portfolio, but you should build a good mutual fund portfolio according to your risk appetite and age.
Also, never try to over-diversify your portfolio in which many investors end up investing in 10-15 schemes. By doing this they may not get the returns they expect in the long run.
You should also review your mutual fund portfolio regularly. If there is a need for some changes in it, then definitely do that too.
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Disclaimer – This article is written for educational purposes only. No investment advice is given in this article. Please consult your financial advisor before making any investment.